Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Saving the Financial System--Thomas PalleyThis is from economist Thomas Palley, from his website.A friend told me the economist Charles Kindelberger had two rules for a credit economy. Rule one was everybody should know that if they get over-extended they will not be bailed-out. Rule two was if everybody gets over-extended they must be bailed out. The U.S. economy has over-extended itself, triggering rule two. But that still leaves open how a bailout should be designed since designs are not all equal. Currently, two models are on the table. One is the Paulson model (also supported by Bernanke) that proposes government buy the bad assets of financial institutions. The other is a Buffett-style recapitalization model that would have government invest in and recapitalize banks, just as Warren Buffett has done for Goldman Sachs. The underlying problem is the financial system is short of capital owing to massive asset depreciation. This shortage is impeding provision of credit, which threatens to tank the economy by interrupting normal commerce. Read the rest of the article. Labels: financial crisis bailout, Thomas Palley Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
